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just had a quick look this morning at Carol alexanders work and this is indeed very interesting........also brings home to me a little that trying to generate a lot of interest in this whole subject could be like pushing certain substances uphill

the thing is (as Ingot54 alluded to in an earlier Post)........understanding correlations and the methods of measuring/reproducing these graphically in a meaningful way is a key weapon in sucessful Trading - ignore it at your peril

I recognise my postings have been a little folksy to date and some people are probably thinking I am not showing enough respect to established Statistical/Scientifc methods in this area................but the truth is I am not a statisician and I would love to bring a balance here to this thread between the Science of correlation techniques verses the brutal practicalities of sucessful Trading

people on this site want profitable/workable trading sIdeas and systems and I want to bring some to the table !

c'mon all - please bring some thoughts to the table.......even if its denegrating my efforts to date and my (flawed?) indicator

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It would be great if someone started using the indicator attached in earlier threads and fedback comments thoughts through this thread..........after about a year of playing with this I still have only achieved 25% of what this baby can do

Well-known member

It would be great if someone started using the indicator attached in earlier threads and fedback comments thoughts through this thread..........after about a year of playing with this I still have only achieved 25% of what this baby can do

I know about correlation, but apart from knowing not to trade against other positions, or in the same direction as other positions already open, I was wondering what else Correlation could be useful for.

I had a look at the pair that I posted (USDCHF and EURUSD) and I noticed something really interesting. At first I thought that the 2 pairs mirrored each other exactly. Mostly they do ... but there are times when there is a delay between when one pair makes a move, and the other moves in the opposite way.

It seems to me that this almost a licence to print money.

If you are quick enough, you can get SHORT the EURUSD if it has not moved when the USDCHF has suddenly gone LONG. Historically the pairs mirror each other, but this arbitrage occurs from time to time, and if you did little else than wait for it, you could do well I think.

I am certain there are people trading this already - there would probably be people who have already posted a method for it. If so, could someone please provide links. It's interesting.

In the chart(s) below, I have shown some subtle differences in the WEEKLY charts.

I think when looking at these divergances on the 1H TF, the opportunity must surely pop out at you n'est ce pas?

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The close corrlations seen on the Euro and Swissie together with relatively low volatilities most of the time does indeed generate some trading ideas - particularly
when their relationship is perceived to be "stretched" on overbought / oversold positions

I have a Version of the FXcorrelator somewhere that isolates the two pairs for this purpose and also adds a "difference in value" line to highight when we see the big o/B or O/S position.......in truth its not perfect as it carries the usual health warnings when one tries to call the turning point between 2 pairs (but risk can be reduced by introducing standard price analysis principles on the EURCHF chart)....also theres the spreads if you are trading real short TF's

i'm at work but will access my home files remotely and try to find it....just need to hide from the Boss (ha ha )

some (most?) correlation trading systems and strategies require multiple trades to implement the plan and exploit the correlation anticipated

trouble is (and ive seen this discussed in a lot of sites) you have no capability to create stop losses, as in each individual trade being made they are all part of a greater dynamic group of trades (ive heard them called clusters ?) sooooo its a real problemo and without manual monitoring if it goes wrong you are really in the dodo...and even manually you could go down real fast on short TF's before you hit the "abort" buttons

let me have a think and also we may get some more comments as well !

love the Long/short idea !.............regardless of Correlation I have always thought that since all Financial Instruments display Fractal Behaviour across different timeframes one could be long in the 5min whilst being Short in the 1h on the same Currency Pair otr indice etc etc .........if you introduce standardised Money management principles (as you've already mentioned) of say 1-2% per trade then actually they are totally different trades in risk/return terms and could superboost your Capital base over time........assuming you are calling it correctly !

so is this a new form of correlation Trading strategy using the same instrument ?..........

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aaaaaahhh..found it , just tidied it up a little and shes good to go !
I will post this in next post.....heres background

Ma200/Delta 3 .........a fairly standard setting i use

I've removed the other 6 currencies to isolate our Pair

Blue Euro , Grey Swissie

I've added a difference line (yellow) between the 2 currencies

The Zero horizontal line now becomes important to measure the variance to
the yellow line

to estimate o/b or o/s areas you will need to add two further horizontal lines (ive put them in yellow dotted).....then position these to where you feel that point is on particular TF being used (ie eyeball them in !)

in example below I have the lower line (oversold) showing (upper line is not showing) as that is where the pair have been considered to be oversold in the past based on my own judgement ......this i not a fix you see where the yellow line turned to impress you all - as it is based on historical information not on the picture

hey everyone try it out and give me feedback !

comment
confession - in actuality this is not a million miles away from looking at the pair in normal mode and introducing standard o/b o/s methodologies........however a normal pairs chart will not show you the slopes/relativity of the 2 Currencies in question or their relationships with the other Currecies at the points of o/b or o/soldness.....this is where we could create the edge to enhancing its success....!